The bankruptcy judge for the Texas Rangers professional baseball club had barely given formal approval yesterday for auction procedures before secured lenders filed a motion asking for reconsideration.
Unless the lenders, owed $525 million, succeed in persuading the judge to change his mind, the auction will take place on Aug. 4, followed the same day by a confirmation hearing for approval of the team’s Chapter 11 plan.
The lenders contend in papers filed yesterday afternoon that they were ambushed at a hearing on July 13 when they thought the subject was a motion by the purchaser to compel the team to move forward with a contract signed just before the bankruptcy filing on May 24. Instead, the lenders say they were met in court by the judge who on his own was proposing rules governing an auction to take place Aug. 4.
The lenders say they had no chance to digest the proposed auction rules. They argue the rules “serve only the purpose of overlaying the façade of an auction process over a case that has been fundamentally flawed from the beginning.”
The first bid at auction will be a $306.7 million cash offer from the group that signed a contract just before bankruptcy. The group includes current team President Nolan Ryan and sports lawyer Chuck Greenberg. The pre-bankruptcy contract price was increased by $2.7 million.
The procedures formally approved yesterday by U.S. Bankruptcy Judge Michael Lynn require competing bidders to post a $15 million deposit if they don’t have financing commitments. Bidders must also be approved in advance by Major League Baseball.
The judge said that approval of a bidder may not be “unreasonably withheld.” The procedures say that Jim Crane and Jeff Beck were already approved by the MLB. If either Crane or Beck is denied approval by MLB, the judge said he would “rebuttably presume that such denial is not in good faith and is unreasonable.” Bids initially are due Aug. 3.
Evidently concerned that someone may try to sandbag the process, Lynn said in his order that everyone is “enjoined from taking any action whatsoever” that would “in any way frustrate, delay, hinder or interfere with implementation of the bidding procedures.”
The lenders say in their papers yesterday that that property was transferred into and out of the team on the eve of bankruptcy, leaving competing bidders in the dark about exactly what assets and liabilities are being acquired.
If the Ryan-Greenberg group are outbid, they will receive a $15 million breakup fee.
The lenders have security interests in the partnerships that own the team. The lenders opposed the original contract with the Ryan-Greenberg group and believed there would be a higher offer if there were an auction on a level playing field. Under the May contract, the lenders would recover $256 million, according to the team’s disclosure statement.
The Rangers moved from Washington to Texas in 1972. The team defaulted on payments owing to the lenders in March 2009. Michael Rochelle, a brother of Bloomberg reporter Bill Rochelle, is a lawyer for an agent for the lenders. The partnership that owns the team is Texas Rangers Baseball Partners.
The case is In re Texas Rangers Baseball Partners, 10-43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).
Swedbank and ISDA File Briefs on Lehman Swaps Appeal
Swedbank AB filed its brief on July 14 appealing a May 5 ruling in the Lehman Brothers Holdings Inc. case where U.S. Bankruptcy Judge James M. Peck held that an ISDA agreement doesn’t allow setting off a post-bankruptcy deposit against a pre-bankruptcy debt.
After the Chapter 11 filing, $11.7 million was deposited into Lehman’s account at the Stockholm-based bank. Relying on the ISDA agreement, Swedbank claimed it was entitled to set the $11.7 million in deposits off against $32 million Lehman owed from before bankruptcy.
Peck disallowed the right of setoff, ruling there wasn’t the required “mutuality.” Peck relied on the traditional concept that the company after bankruptcy is a different entity from the pre-bankruptcy company. Thus, debts from before bankruptcy cannot be set off against credits after bankruptcy.
In its brief, Swedbank argues that setoff is permitted by 2005 amendments to bankruptcy law covering so-called safe-harbor provisions for swap agreement. The bank argues that Peck’s ruling “created precisely the kind of uncertainty that Congress sought to prevent through its enactment” of the safe harbor provisions allowing setoffs in swaps and similar transactions. Absent the safe harbor, the automatic stay arising in bankruptcy would have precluded setoffs.
Peck addressed the issue in his 19-page opinion on May 5 and concluded that Congress didn’t intend to end the mutuality requirement for swap agreements.
ISDA refers to the International Swaps and Derivates Association Inc. ISDA filed a friend-of-the-court brief on the bank’s side, arguing that Peck’s ruling “undermines the legal certainty Congress intended to provide swaps market participants, and threatens to stir up the very turmoil in the financial markets that Congress intended to prevent.”
There won’t be a decision on the appeal before September. Lehman and the creditors’ committee are to file their briefs by Aug. 18. The bank can file a reply brief by Sept. 1.
Lehman filed a Chapter 11 plan and explanatory disclosure statement. For details on both, click here and here for the April 15 and 16 Bloomberg bankruptcy reports.
The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment banking business to London-based Barclays Plc one week later.
The Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court. The brokerage is in the control of a trustee appointed under the Securities Investor Protection Act.
The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District New York (Manhattan).
Truvo Files Plan for Aug. 5 Disclosure Hearing
Subsidiaries of Truvo Luxemburg Sarl, a Belgium-based international publisher of directories, missed a June 1 interest payment on two issues of second-priority notes, sought Chapter 11 protection on July 1, and submitted a reorganization plan on July 14.
The plan was negotiated with holders of 80 percent of the 778 million euros ($1.007 billion) of first-priority senior debt and holders of 15 percent of the second-priority debt. The hearing for approval of the disclosure statement explaining the plan is scheduled for Aug. 5.
The senior lenders under the plan are to receive the new equity plus 600 million euros in new debt. The disclosure statement estimates the senior lenders’ recovery will range between 63.8 percent and 84.1 percent.
In return for the 595 million euros on two issues of second-priority notes, the holders are to be given 15 million euros and warrants for 14 percent of the stock at a 150 million euros strike price. The estimated recovery is 2.8 percent to 4.8 percent. If the class votes against the plan, they are to receive nothing.
For the 174 million euros on pay-in-kind third-priority notes, holders will receive warrants for 1 percent of the stock, said in the disclosure statement to be worth a 0.5 percent recovery. If the class votes against the plan, they are to receive nothing.
The new debt for the senior lenders is to consist of 350 million euros in first-lien debt, 100 million euros in second-lien debt, and 150 million euros in pay-in-kind debt.
The petition lists assets for 1.04 billion euros against liabilities totaling 1.67 billion euros.
Truvo is the leading directory publisher in Belgium, Ireland and Romania. Through a joint venture, it is the leading directory publisher in Portugal.
The case is In re Truvo USA LLC, 10-13513, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Movie Gallery Files Plan, $5 Million for Unsecureds
Movie Gallery Inc., the liquidating movie-rental chain, filed a Chapter 11 plan this week where secured lenders are giving up $5 million cash to be put in trust for unsecured creditors.
Movie Gallery didn’t yet file a disclosure statement with details about the plan and the predicted percentage recovery. Absent the disclosure statement, creditors don’t know the size of the claims or the proceeds from liquidating assets.
The plan will create two trusts, one for secured creditors and the other for unsecured creditors. The lenders will be paid cash on confirmation of the plan derived from the liquidation of their collateral. Other collateral converted to cash later will go into the lenders’ trust.
Under the plan, the term loan lenders won’t assert any deficiency claims against the trust for unsecured creditors.
The plan calls for substantive consolidation where all assets and all liabilities from the five Movie Gallery companies are thrown into one pot. Although substantive consolidation is often a contentious issue, it may not matter much with Movie Gallery because unsecured creditors might receive nothing at all absent the give-up by secured creditors.
Movie Gallery liquidated the last 1,028 movie-rental stores. It had some 2,600 stores in operation on filing under Chapter 11 again in February. The new filing was less than two years after the previous bankruptcy reorganization. When the new case began, debt included $100 million on a secured revolving credit, $394 million on a first-lien facility, and $146 million in claims held by second-lien creditors.
Great American Group Inc. liquidated the last 1,028 stores by guaranteeing $74.2 million.
Movie Gallery operates under the names Movie Gallery, Hollywood Video and Game Crazy. It had 3,490 stores before the first bankruptcy, which concluded with a confirmed Chapter 11 plan in May 2007. For details on the second filing, click here.
The new case is In re Movie Gallery Inc., 10-30696, U.S. Bankruptcy Court, Eastern District Virginia (Richmond). The prior case is In re Movie Gallery Inc., 07-33849, in the same court.
Visteon Considering Stock Sale to Unsecured Creditors
Auto-parts maker Visteon Corp. prevailed over a group of dissident unsecured creditors and was given an extension until Oct. 15 of the exclusive right to propose a Chapter 11 plan. A company lawyer said in court yesterday that talks are being conducted about giving unsecured creditors the right to buy $15.75 million of new stock. To read Bloomberg coverage, click here and here.
Visteon has a confirmation hearing for approval of the reorganization plan scheduled to begin Sept. 28. The judge set aside 10 days in view of opposition. In addition to shareholders and some creditors who are opposed, a group of trade suppliers say they have enough “no” votes to block approval by the unsecured creditor class. For details on Visteon’s plan, click here for the June 15 Bloomberg bankruptcy report. For a summary of the positions by various parties before the judge approved the disclosure statement, click here for the May 25 Bloomberg bankruptcy report.
Visteon filed for reorganization in May 2009, listing assets of $4.6 billion against debt totaling $5.3 billion. Sales in 2008 were $9.5 billion, including $3.1 billion to Ford Motor Co. Visteon was spun off from Ford in 2000. Van Buren Township, Michigan-based Visteon at the outset owed $2.7 billion for borrowed money, including $1.5 billion on a secured term loan, $862 million on unsecured bonds, and $214 million on other debt obligations.
The case is In re Visteon Corp., 09-11786, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Tronox Says Anadarko Throwing a ‘Wrench’ into Case
Kerr-McGee Corp. and its parent Anadarko Petroleum Corp. are engaged in “a transparent attempt” to “throw a wrench” into the reorganization, according to papers filed July 14 by Tronox Inc., the world’s third-largest producer of the white pigment titanium dioxide.
Tronox was responding to a motion from late June where Kerr-McGee and Anadarko are asking the bankruptcy court to compel assumption of one of the agreements when Tronox was spun off from Kerr-McGee, the former parent.
Tronox says that the agreement is at the heart of the lawsuit where it is hoping to recover environmental remediation costs it was given when spun off from Kerr-McGee in March 2006. Tronox says the agreement was among the transactions that can be voided as fraudulent transfers.
A hearing on the dispute is set for July 21.
Tronox filed a reorganization plan on July 7 where unsecured creditors with an estimated $471 million in claims will realize a recovery from 80 percent to 100 percent by receiving most or all of the new common stock.
To deal with environmental claims estimated for as much as $5.2 billion, the plan will create trusts to be funded with 88 percent of proceeds from the lawsuit against Anadarko. The trusts will also have $50 million in preferred stock convertible into 7.2 percent of the stock in five years.
The environmental trust will also have warrants for 15.7 percent of the stock, based on total enterprise values between $1 billion and $1.2 billion. The trust will also have insurance policies.
Personal injury tort claimants, if they accept the plan, will have 12 percent of the proceeds from the Anadarko lawsuit plus $7 million cash and insurance policies. If the class rejects the plan, they will be treated like other unsecured creditors.
General unsecured creditors will have all the new stock, subject to dilution by the warrants.
The company will be financed after bankruptcy by rolling over the $335 million loan for the Chapter 11 case into a term loan. There will be a $125 million revolving credit and a separate term loan up to $150 million to fund the environmental trust and for working capital.
The hearing for approval of the disclosure statement explaining the plan is set for Aug. 10.
In March Tronox mostly defeated a motion by Kerr-McGee and Anadarko to dismiss the lawsuit. Anadarko acquired Kerr-McGee for $18.4 billion in August 2006.
The Chapter 11 petition by Tronox in January 2009 listed assets of $1.56 billion against debt totaling $1.22 billion. Debt includes $213 million on a secured term loan and revolving credit, $350 million in 9.5 percent senior notes, and a $40.7 million accounts receivable securitization facility. Tronox’s products are used in paints, coatings, plastics, paper and consumer products. The operations outside of the U.S. didn’t file.
The case is In re Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Lexington Rubber Group Unsecureds Vote ‘No’ on Plan
When Lexington Precision Corp., a manufacturer of rubber components for autos and medical devices, begins the July 21 confirmation hearing to approve the Chapter 11 plan, it will face opposition from unsecured creditors of the operating company Lexington Rubber Group who voted “no.”
To confirm the plan will require using the so-called cramdown procedure. The plan calls for the class to be paid in full over ten quarterly installments.
The unsecured creditors’ committee filed papers yesterday saying that the proposed interest rate, 6.02 percent, is too low. The plan provides that the judge will determine the proper interest rate if cramdown is necessary.
The committee is urging the judge to impose a 15.5 percent rate post bankruptcy, the same rate to be given one of the secured term loans under the plan.
In a cramdown, unsecured creditors must be paid in full, with interest, else lower classes of debt and equity can receive nothing. All other creditor classes voted for the plan, including unsecured and subordinated note creditors of the parent Lexington Precision.
The plan will be funded in part by the sale of $22 million in stock, at $10 a share, to Commercial Finance Services 407 LLC. Subordinated noteholders are being given the chance to change their votes to “no” because they were only told this week that their stock recovery would be diluted by 5.4 percent on account of equity given to the so-called plan investors.
The plan reduces debt by more than $50 million while giving holders of senior subordinated notes an estimated 51 percent recovery. Subordinated noteholders, owed $34.18 million in principal, may elect between taking 51 percent in cash or swap for stock at roughly $20 of debt for each new share.
General unsecured creditors of Lexington Precision are estimated to have an 85.4 percent recovery, according to the disclosure statement. They are to have 8 percent in cash on implementation of the plan, with the remainder paid 8.6 percent in cash at each of the ensuing nine quarters. The disclosure statement says that the present value of the payments is 80 percent.
Alternatively, unsecure creditors can elect to receive 51 percent paid in cash.
Asbestos claims are to be paid in full with insurance proceeds. If insurance is insufficient, the remainder will be paid over time like general unsecured creditors. Secured debt under the company’s plan is to be paid in full through revised credit agreements.
Lexington filed under Chapter 11 in April 2008 after workout negotiations failed with an ad hoc committee of holders of the senior subordinated notes. The detailed lists of assets and debt show property with a value of $42 million against liabilities totaling $41.3 million, including $36.4 million in secured claims. Revenue in 2008 was $88.5 million. Manhattan- based Lexington has three plants and more than 650 workers.
The case is In re Lexington Precision Corp., 08-11153, U.S. Bankruptcy Court, Southern District New York (Manhattan).
W Hotel in New York to Change Hands in Chapter 11 Plan
Ownership of the W New York Union Square hotel in Manhattan is to change hands under a Chapter 11 plan filed on July 14 by the hotel’s indirect owners, Hotels Union Square Mezz 1 LLC and Hotels Union Square Mezz 2 LLC.
The plan calls for selling the ownership interest in the hotel to a partnership led by Host Hotels & Resorts Inc. Many of the details regarding the sale and the underlying settlement are being kept secret.
Because all affected creditors are parties to the settlement, the plan calls for creditors to vote even before approval of the disclosure statement. The proposed schedule calls for holding one hearing in late August both to approve the disclosure statement and to approve the plan with a confirmation order.
An affiliate of Dubai World purchased the hotel in 2006. The $285 million acquisition of the hotel was financed by a $115 million first mortgage, three mezzanine loans totaling $117 million, and a $53 million equity investment.
After the mezzanine loans went into default, an affiliate of Lubert-Adler Real Estate Funds, which acquired the $20 million of third-tier mezzanine debt, foreclosed the so-called Mezz 3 entity. Mezz 1 and Mezz 2 filed Chapter 11 petitions in March to prevent their own foreclosures. Mezz 1 is the owner of the entity that owns the hotel. Mezz 2 owns Mezz 1, and Mezz 3 in turn owns Mezz 2. Dubai World previously owned Mezz 3 indirectly.
The plan allows Union Square Real Holding Corp., the current owner of the claims against Mezz 2, to purchase an interest in the newly formed Host entity that will buy the hotel out of bankruptcy. The settlement and plan will end disputes over whether USRHC is properly the owner of the Mezz 2 interest.
DekaBank Deutsche Girozentrale, currently the owner of the $60 million in first-tier mezzanine debt against Mezz 1, will be paid $61 million cash under the plan plus money it advanced since March to cover debt service on the $115 million first mortgage.
The Lubert-Adler fund will receive $9.25 million cash and a note on account of its ownership of the Mezz 2 entity that has $37 million in debt. The fund in turn has an obligation to pay expenses of the Chapter 11 case, priority claims, claims of unsecured creditors, and any miscellaneous secured claims.
Unsecured creditors at all levels will be paid in full.
USRHC paid $3.6 million in March to buy the $37 million Mezz 2 loan. USRHC made the new investment to protect its $53 million investment in the hotel.
The case is In re Hotels Union Square Mezz 1 LLC, 10-10971, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Nexity Says Prepack on Way for $36 Million in Debt
Nexity Financial Corp., which describes itself as a leading provider of capital and support services for community banks, said it reached agreement on a restructuring with holders of 88 percent of $36 million in debt.
On account of the 12 percent holding out, the Birmingham, Alabama-based company said in a statement yesterday that it will file a so-called prepackaged Chapter 11 case to complete the restructuring.
Nexity say the restructuring will be accompanied by a $175 million private placement of common stock.
The company hasn’t filed quarterly reports with the Securities and Exchange Commission since the quarter ended September 2008. The bank subsidiary, Nexity Bank, is operating under a cease and desist order issued by regulators.
The stock sporadically traded since May around 15 or 16 cents a share in the over-the-counter market.
Station Casinos Plan Going Out to Creditors for Vote
Casino operator Station Casinos Inc. prevailed on the bankruptcy judge at a hearing yesterday in Reno, Nevada, to approve the disclosure statement explaining the reorganization plan. The confirmation hearing for approval of the plan is set to begin Aug. 27. A company lawyer said in court that discussions are ongoing with unsecured creditors that could produce agreement so contested confirmation turn into consensual confirmation. For Bloomberg coverage of the hearing, click here.
Confirmation will be preceded by an auction on Aug. 6 for some of the casinos. The first bid of $772 million will come from a group including current owners Frank and Lorenzo Fertitta. The plan incorporates an agreement structured around the auction. For details on the auction, the appeal being taken by unsecured creditors, and the Station Casinos reorganization plan, click here for the June 11 Bloomberg bankruptcy report. Station Casinos filed under Chapter 11 in July 2009. It has 13 properties in Las Vegas plus five joint ventures. It also operates casinos for American Indian tribes. Station’s debt was the result of a leveraged buyout in November 2007 by Fertitta Colony Partners LLC.
The case is In Re Station Casinos Inc., 09-52477, U.S. Bankruptcy Court, District of Nevada (Reno).
AbitibiBowater Disclosure Hearing Put Off Again
AbitibiBowater Inc., the largest newsprint maker in North America, once again put off the hearing to approve the disclosure statement explaining the Chapter 11 plan. Originally set for July 7, the hearing was pushed back to July 15 and yesterday was adjourned to a date to be determined, court records say. Aurelius Capital Management LP and Contrarian Capital Management LLC believe they have a blocking position preventing approval of the plan because they own notes representing more than one-third of unsecured claims against Bowater. The indenture trustee for notes issued by Abitibi is opposed to the disclosure statement until it is revised to explain how value was allocated between Abitibi and Bowater.
The disclosure statement tells creditors of each of the more than 30 affiliated companies how much they could recover. For details about the plan, click here for the May 25 Bloomberg bankruptcy report.
AbitibiBowater was formed in October 2007 through a merger between Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc. Abitibi is a producer of newsprint, uncoated mechanical paper and lumber. Bowater also makes newsprint along with papers, bleached kraft pulp and lumber. The Montreal-based company began reorganizing with 24 pulp and paper mills plus 30 wood-product plants. Revenue in 2008 was $6.8 billion. In Chapter 11 petitions filed in April 2009, the combined AbitibiBowater companies listed assets of $9.9 billion and debt totaling $8.8 billion as of September 2008.
The case is AbitibiBowater Inc., 09-11296, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Extended Stay Has $16.2 Million Net Loss in June
Extended Stay Inc., the operator of more than 680 long-term lodging properties in 44 states, reported a $16.2 million net loss in June on total revenue of $77.9 million. Operating income in the month was $4.1 million while interest expense was $17.5 million.
Extended Stay’s reorganization plan is scheduled for approval at a July 20 confirmation hearing. The plan is founded on a sale for $3.925 billion cash to Centerbridge Partners LP, Paulson & Co. and Blackstone Group LP. For details about the company’s plan and the auction won by the Centerbridge group, click here to read the June 10 Bloomberg bankruptcy report. Extended Stay’s Chapter 11 petition in June 2009 listed assets of $7.1 billion against debt totaling $7.6 billion, including $4.1 billion in mortgage loans and $3.3 billion in 10 different mezzanine loans.
Based in Spartanburg, South Carolina, Extended Stay says it’s the largest operator of midpriced extended stay hotels in the U.S. The properties are nearly all managed by HVM LLC, an affiliate that didn’t file in Chapter 11.
The case is In re Extended Stay Inc., 09-13764, U.S. Bankruptcy Court, Southern District New York (Manhattan).
Proliance Case Convert to Liquidation in Chapter 7
The Chapter 11 case of Proliance International Inc. was converted this week to a liquidation in Chapter 7. Although the manufacturer of auto and truck aftermarket heat exchange and temperature control products had a liquidating Chapter 11 plan on file, there wasn’t enough cash to cover administrative and priority claims that must be paid in full. The bulk of the domestic assets were sold for $15 million cash to Centrum Equities XV LLC, the company that owns the aftermarket business spun off in 2008 from Visteon Corp. The Dutch affiliate went for 17.7 million pounds ($27.27 million.)
From the asset sales, $410,000 was carved out by secured creditors to pay unsecured and priority claims. Proliance’s petition in July 2009 listed assets of $160 million against debt totaling $134 million, including $40.1 million owing on a secured term loan and revolving credit. Trade debt amounted to $51.7 million, according to a court filing. Proliance’s 20 locations outside the U.S. weren’t in bankruptcy. Sales in 2008 were $350 million.
The case is In re Proliance International Inc., 09-12278, U.S. Bankruptcy Court, District of Delaware (Wilmington).
BP, Brown, Lucien Piccard, and Bank Contempt: Audio
Legislation passed by the House of Representatives affecting BP Plc, an attack on Brown Publishing Co. liens, the filing by the Lucien Piccard watch brand, and an important decision where banks are at risk of being in contempt are discussed in the latest bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.